Capital Commitment
The legally binding promise of a total amount to be contributed over the life of the fund.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- AlphaThe return a fund earned above what its beta and the benchmark say it should have earned — the slice of performance left over once the market has been given credit for its share.
- BetaHow sharply a share moves relative to the market index — beta 1 moves with the index, above 1 amplifies it, below 1 dampens it. The standard measure of systematic risk.
- Blind poolA fund in which investors commit capital to the pool rather than to named deals — the manager chooses the investments afterwards, which is why the subscription agreement must settle everything in advance.
- Catch up clauseThe waterfall step that pays the manager a set share — often 100% — of the profit left after investors receive their capital and hurdle, until the manager reaches its agreed share of total profit.
- Catch-up RateThe rate at which residual profits go to the manager after investors have received their capital and preferred return, until the manager holds its agreed share of total profits.
Where this is taught
- Series XIX-D · Chapter 4: Alternative Investment Funds Ecosystemintroduced here
- Series XIX-B · Chapter 3: Introduction to Category III AIF Ecosystemintroduced here
- Series XIX-C · Chapter 7: Alternative Investment Funds Ecosystemintroduced here
- Series XIX-A · Chapter 3: Concepts in Alternative Investment Funds Industryintroduced here
Related terms
- Contribution AgreementThe agreement between one investor, the trustee and the investment manager that sets the terms on which that investor participates in the AIF — the contract that turns a commitment into units.
- Set-up CostThe one-time cost of forming the fund and issuing its units, charged to investors as a percentage of capital commitments — up to 1.5% or 2.5% — and usually amortised over the first 36 months.
- Commitment PeriodThe window in a closed-ended fund during which the manager may call capital against commitments — and the period over which management fee is charged on committed rather than invested capital.
- Blind poolA fund in which investors commit capital to the pool rather than to named deals — the manager chooses the investments afterwards, which is why the subscription agreement must settle everything in advance.
- Total Value to Paid-in CapitalA fund's investment multiple: cumulative distributions plus the residual value of unsold investments, divided by paid-in capital — equivalently, DPI plus RVPI.
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